eLab: New Business Models for the Distribution Edge

The electricity industry is evolving from a traditional value chain to a highly participatory constellation of interconnected business models at the distribution edge, where retail customers interface with the distribution grid. The regulated distribution utility of the future can be an important partner in helping to coordinate the deployment and integration of distributed resources. Achieving this outcome, however, may require transformative changes to existing utility business models. This paper describes: 1) how and why the forces changing the electricity system challenge existing pricing and business models, 2) principles that could guide the creation of new business models, and 3) an emerging “solution set” of new business models. Read the full executive summary

The declining costs and improving performance of distributed energy technologies are expanding the range of options for onsite generation and management of electricity, driving accelerated deployment of these technologies by customers and third-party service providers. Already, the growing role of distributed resources in the electricity system is leading to a shift in the fundamental business model paradigm of the industry. The electricity industry is evolving from a traditional value chain to a highly participatory network or constellation of interconnected business models at the distribution edge, where retail customers interface with the distribution grid.1 Ultimately, customers that are playing a larger role in producing and managing their energy may also help to provide electricity services to the grid to enable better economic optimization of resource use across the entire system.

Existing electric utility business models, however, are poorly adapted to tap the potential value of distributed resources to meet societal demands for cleaner, more resilient, and more reliable electricity supply. Achieving optimal integration of distributed energy resources will require a versatile and flexible foundation for value-based transactions with and among the many parties. With increased options come increased complexity—and a growing need for better coordination. The regulated distribution utility of the future can be an important partner in helping to coordinate the deployment and integration of distributed resources—investing in grid infrastructure to support this new and more dynamic system, conveying signals about system conditions, and integrating disparate resources to harvest the benefits of diversity for all stakeholders.

Achieving this transition may require transformative, rather than incremental, changes in utility business models. Existing regulatory paradigms and pricing structures can be adapted to provide appropriate incentives for distributed resource deployment, operation, and integration. But they do so by layering new remedies on existing models, adding complexity. At some point, shifting to a new, more customer-centric system may provide a better, simpler, and more elegant solution.

This paper describes 1) how and why the forces changing the electricity system challenge existing pricing and business models, 2) principles that should guide the creation of new business models, and 3) the emerging “solution set” of new business models. Download the executive summary